vvv HomelandSecurity

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Homeland Security: Public

Restructuring and Private

participationDrs. Simon Hakim and Erwin Blackstone

Center for Competitive Government

The Fox School of Business & ManagementTemple University

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Topics Covered:

• The problem and its significance

• Objectives of this presentation

• The nature of catastrophic events

• Alternative solutions:

– Restructuring emergency services

– Private participation

– Insurance

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The Problem

In spite of the substantial increase in federal

spending, only one quarter of state

emergency operations plans and 10 percent of

municipal plans are sufficient to cope with anatural disaster or terrorist attack (Flynn,

2007:5). The majority of plans “cannot be

categorized as fully adequate, feasible oracceptable to manage catastrophic events”

(U.S. DHS, June 2006).

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Significance of Problem

Additional funding required to cover potential

emergency response needs are approximately

$98.4 billion over five years. This figure does

not include overtime, training, and policeforce needs across the U.S. (Council of Foreign

Relations, Rudman Report, 2003:

31). All expect the federal government to carrythis additional burden.

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Objectives of presentation

• Examine whether resources within existing

emergency services can be shifted to HLS with

no loss in public good provision.

• Examine outsourcing of emergency services

• Examine incentives for greater private

participation in HLS

• Regulating insurance to encourage private

precautions

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Nature of catastrophic Event

• Uncertainty of event. Timing, location, target, and nature are

unknowable but consequences can be devastating. This

implies difficulties in relying on preventive measures. Also,

the uncertainty leads to excessive insurance premiums.

• Peak-time nature. When an event occurs, normally

unavailable resources are necessary.

• Appropriate strategy requires on-going preparation and

training and not just reaction when event occurs. Included

are training of first responders, developing plans, proceduresand protocols, conducting desktop exercises

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Restructuring Public Emergency

Services: Police

• Police services that do not involve public good

attributes include attending and investigating

minor traffic accidents, escorting funerals and

oversized vehicles, animal control, unlockingvehicles, recording citizen complaints, checking

on people’s welfare, and traffic control during

road construction.• The largest single item on police budgets is

response to burglar alarms of which 94-99

percent are false. 7



Restructuring Police Services

• Current local alarm ordinances prevent private

response:

- 3-5 free false response a year

- Escalating fines

- Cease response after certain number of false

activations a year

- Educating repeat activators- Police treat activators as criminals while they are

consumers

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Restructuring Police Services

Private services provided by public police:

• When alarm owners accidently activate their

system or when a system malfunctions then

there are no social benefits from catching or

deterring burglars when police respond.

• Inequitable since non-alarm owners or non-

activators share the cost of response

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Restructuring Emergency services:

Police

Our calculations show that if police indeed

eliminate the delivery of non-public goods

then 13 percent or 55,000 patrol officers could

effectively be used for other services with nosocial loss. In dollar terms the total annual

savings will be $2.8 billion (Blackstone, Buck,

and Hakim, 2007).Solution: Verified response. Private security

responds and if it is real burglary, police

respond at high priority. 10




Police

If police choose to respond to all activations

then consumers must pay for actual response

service rendered at long run average cost. No

cross subsidization with other public servicesprovided by police. No annual fees. Free

entry of private response companies should

be allowed.

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Contracting Out Police Services

Some police services could be produced under

market conditions where many potential

suppliers exist. This will most likely improve

efficiency in their provision. Police couldcontract out such services as handling

abandoned vehicles, providing criminal

information databases, enforcing traffic andparking regulations, providing lost and found

services, guarding prisoners,

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Contracting out police Services

protecting court rooms and public

infrastructures, processing reports, and

fulfilling office administrative duties. Basically,

wherever civilian workers could replaceexpensive sworn officers, savings on the order

of 30 percent will be realized. Contracting out

will lead to an additional annual savings of$1.15 billion or the equivalent of 23,000

officers (Hakim, Buck, and Blackstone, 2007).

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Fire

Extinguishing fires is a public good since fires

spread and cause harm and injury to others.

However, responding to a false alarm is not a

public good. If a resident overheats his stovecausing a false alarm and a fire engine

responds then others in the community gain

no benefits while bearing a long run marginalcost between $365 and $1,050. Fifty-eight

percent of fire responses are to false calls.

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Restructuring Emergency Services:

Fire

We estimated that if false alarms are eliminated

between 18,600 and 48,900 fire-fighters or

equivalently between $0.93 billion and $2.44

billion could be saved or reallocated to otheruses. Clearly, by pricing false alarms and

enabling competitors to enter, cost of

production will diminish, service level wouldremain the same, and social welfare will rise.

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Restructuring Emergency Services:

Fire

Charging for false activations will reduce their

number and the burden on public budgets.

Also private companies or other response

entities should be allowed to compete withthe public fire department.

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Annual Savings from Elimination and Contracting out



Annual Savings from Elimination and Contracting out

of Services

First Responders Annual SavingsNumber of responders that

could be reallocated

Police

Elimination of false alarm

response$1.8 billion 35,000

Contracting out services$1.15 billion 23,000

Fire


response $0.93-2.44 billion 18,600-48,900

Ambulance


response

$0.92 billion 18,300

Total $5.80-$7.31 billion 115,100-145,400

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Private Participation: Guards

• Peak time demand: create HLS regional

reserve units of pre-trained paid security

guards. In 2005 in the US, 2.1 M guards and

only 700K public law enforcement officers.

• Pre-trained volunteer medical units: In Boston

unit is trained to establish clinic to provide

mass inoculations. A church group inBeaverton OR stuffed a flood information and

referral line.

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Private participation

In New York City more than 1,000 private security organizations

are linked with the police to prevent, prepare for, and respond

to homeland security incidents. They work together on

building evacuation plans, security screening of vehicles

entering facilities and adjacent parking, checking suspiciousindividuals and packages, and sharing terrorism alerts. In Las

Vegas, private security forces guide police in casino related

criminal events, and the police train private security in the

usual criminal incidents .

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Private Participation: Executives

• Tap expertise of private executives to head regional

HLS existing and reserve units at time of catastrophic

event. During non-emergency times, these

executives will plan and train. It could includeexisting or former public officials, retired military

leaders, corporate executives. These reserve

management positions offer appeal to talented

people. For example, Mayor Bloomberg, NJ USSenator Lautenberg, NJ Governor Corzine. Heading

HLS efforts eases entry to elected position.

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Private Participation: Capital

A major event requires far more equipment than government

normally maintains. This equipment includes fire engines,

rescue vehicles, heavy construction type vehicles, medical

equipment and other equipment that is event dependent and

is difficult to anticipate. Since the private sector owns most ofsuch equipment we need to develop a process by which such

equipment could be transferred to the management of the

event. The state legislature could grant the homeland

security directors the power to requisition with appropriatecompensation necessary personnel and equipment from the

private sector.

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Private Participation: Legal Issues

Numerous legal, administrative, and payment issues arise

whenever private resources are shifted to the public sector to

respond to natural or terrorist events. Responders have to be

assured that they will enjoy protection against liability for

their interjurisdictional activities performed with usual careand diligence. Normally, police officers have everywhere

within a state the authority to enforce the state law. Prior

agreements for private sector resources including personnel

and equipment have to be arranged to include their authority,duties, protection against liability, and payments for damages

or injuries incurred in the course of their public deployment.

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Insurance as a Catalyst for

EfficiencyProblems:

1. Few incentives exist for owners of infrastructure to take sufficient HLS

precautions.

2. Uncertainty about the extent of the damage means that the federal

government reinsures insurance companies only for large damages;most properties are not insured for HLS.

Suggestion:

The federal gov’t could require all commercial property above some amount

to have terrorism insurance

Anticipated Outcome: Competition among insurance companies will establish reasonable premiums

and the insureds will be offered discounts for undertaking adequate

security precautions in buildings safety, guards, electronic warnings etc.

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Conclusions

HLS Services could be significantly improved by greater

participation of the private sector

• Shedding non-public services

• Contracting Out security services that are amenableto competition

• Create regional HLS reserve units to handle peak

time which might include private sector executives in

leadership positions

• Developing market incentives through regulated

insurance.

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References

• Blackstone, Erwin A., Andrew J. Buck, and Simon Hakim (2007). “The Economic of

Emergency Response”, Policy Sciences, Vol. 40 (4): 313-334).

• Council of Foreign Relations (2003). Emergency Responders: Drastically

Underfunded, Dangerously Unprepared. The Rudman Report, NY, NY.

• Clarke, Richard A. Rand Beers, et al. (2006). The Forgotten Homeland: A Century

Foundation Task Force Report, the Century Foundation, New York, NY.• Flynn, Stephen (2007). The Edge of Disaster: Rebuilding a Resilient Nation.

Random House, New York.

• Hakim, Simon, Andrew J. Buck, and Erwin A. Blackstone (2007). “Funding the Local

War on Terror”, Milken Institute Review, Vol. 9 (1), First Quarter: 46-56.

•

Kunreuther, Howard and Erwann Michel-Kerjan (2004). “Challenges for TerrorismRisk Insurance in the United States”, Journal of Economic Perspectives, Vol. 18 (4),

fall: 201-214.

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